ENTREPRENEUR FAQ

Entrepreneur faq

Angel investors are individuals who invest their own money in startups. Because angels want to actively help & mentor the entrepreneurs they back, they usually focus investments on local startups.

Each individual angel typically makes an initial investment of between $25,000 – $100,000 into a startup, and may invest more in future funding rounds. Some angel investors come together to form angel groups, which enable you to efficiently approach many angel investors at once for a larger collective investment.

WHEN AM I READY TO APPROACH ANGEL INVESTORS FOR FUNDING?

Angel investors invest in startups at their earliest stages, so it is never too early to start a fundraising dialog, even if all you have is an amazing idea knocking around in your head. The more progress you have already made – on product development, customer acquisition, or even revenue, the more attractive the deal terms you will typically be able to obtain from angel investors.

HOW DO I MEET ANGEL INVESTORS?

IDENTIFY TARGETS

Identify angel investors likely to invest in your startup based on their location and sector preferences. One way is to search for angels who have previously invested in startups that are similar (but not directly competitive) to your own.

GET INTROS

Use your existing professional network to get a warm intro to your target angel investors. Entrepreneurs, startup attorneys, accelerator managers, and other startup service providers are likely to be good vectors for an intro.

ATTEND EVENTS

If your target angel investor is speaking at an event, arrive early and introduce yourself before the event starts. Secure an agreement from the angel investor for a follow-on meeting at a later date.

WHAT SHOULD BE IN MY INVESTOR PITCH DECK?

A successful pitch is like an engaging movie trailer – it should clearly convey the gist of your business and provoke investors to engage. Be interesting, tell a memorable story, and make heavy use of visuals. 10 – 15 slides are all that’s needed.

PROBLEM

SOLUTION

MARKET SIZE

Use both tops-down and bottoms-up. Segment and identify your sweet spot.

BUSINESS MODEL

Explain how you make money. State your customer acquisition cost and lifetime value.

GO TO MARKET

Describe your sales distribution model.

TRACTION

List current customers, partners and users, as well as your pipeline.

COMPETITION

List your competitors and describe your economic moat.

TEAM

List your founders, key management and advisors.

HOW MUCH MONEY SHOULD I RAISE?

You should raise enough money to enable your company to hit operating metrics that will result in a material increase in your company’s valuation. As it typically takes time for startups to make meaningful progress, you should also target to raise enough money to fund company operations for 12 – 18 months.

HOW DO I COME UP WITH A VALUATION FOR MY STARTUP?

If you are raising your first round of funding, you would typically sell between 20% – 35% of your company to investors. Based on the amount of money that you need to raise, you can mathematically back into a reasonable valuation range.

The HALO Report provides national data on startup valuations that can be a helpful reference. As valuations vary by location, you should also consult local angels on the typical range for your region.

WHAT DEAL STRUCTURES SHOULD I USE FOR FUNDRAISING?

Most startup financings are structured as preferred equity or convertible notes with a valuation cap. Convertible notes should only be used if there is a reasonable expectation that a future round of preferred equity will be raised within the term of that note.

Below are model financing documents prepared by the Alliance of Angels. They incorporate and discuss the terms commonly used in financing documents for startups. These documents can be used “as is”, as a starting point for discussion, or as a tool to better understand options and alternatives.